Saturday, February 9, 2013

Sharp reversal in EUR sentiment

It's quite amazing how the world has changed in just a few months. Back in July traders were still piling into the short-euro trade. Nobody wanted to hear that it was becoming a "crowded trade" (as discussed here) - after all the euro "can only go down". Since then these euro bears have endured pain, as the sentiment reversed sharply. The Goldman EUR/USD sentiment index, which is based on the CFTC statistics of speculative positions of futures traders, is moving deep into the bullish territory.

GS: - Net EUR long spec positioning continued to rise; at 80.4 percent our Sentiment Index (SI) is now at its highest level since May 2011

The fundamentals continue to support this position, with the ECB uninterested in pushing the euro lower (see post). But the technicals will need to be watched closely for signs of overcrowding.